Inventory and prices steady as mortgage rates fall.

Rising rates and economic uncertainty sow doubts on the housing market. But if you’ve been watching the headlines, you get the impression there is no buyer demand, that prices are coming down.  That is not the case in Sarasota County. Remember, local markets behave differently. We continue to have tremendous demand, including heavy traffic at Open Houses. Personally, in just the past month I have sold 5 homes.

In Sarasota County home sales slowed dramatically once mortgage rates hit 5.5% in May, reaching 7.08% in October. From a high of 813 sales in May, sales plummeted to 356 sold homes in November. However, in November rates began to trickle down to a 6.5% range, with sold homes increasing 12.3% in December.

The average 30-year, fixed rate mortgage was 6.15% for the week ending January 19. With recent history as my guide, 5.5% is the threshold. As the Federal Reserve continues to increase its benchmark interest rates, inflation is slowly coming down. As the rate of inflation falls, yields on long-term bonds and mortgage rates will likewise fall. Buyer demand and prices will pick up when rates get below 5.5%, a 2023 event.

Inventory. There were 1,106 homes on the market as of the end of December, 50% fewer homes than January 2020, before the pandemic. Although inventory has risen 195% since December 2021, coming off historically low levels of supply, it is still tight with only a 3-month supply of homes for sale (6-months is considered a balanced market). Low inventory is really a seller’s story. Unless a seller must move for health, lifestyle or job related reasons, particularly if he has a mortgage, there is little motivation to trade in his comfortable home or low mortgage rate for a higher rate.  The continuing low number of listings and sales will keep a lid on supply and demand.

Prices. Prices are a function of supply and demand. Consistent low supply will keep prices up. In December, the median sold price for existing single family homes was $485,000, 1% higher than November, 12.8% higher than 1 year ago.

There will be no crash. If rates hover in the 6.5% range, prices may reflect some temporary downward pressure, no more than 10%, providing buyers with greater negotiating flexibility than they have had in the past 3-years.  Considering the median sold price has risen 46.8% over 2 years, if sellers need to sell now, they can easily absorb a 10% adjustment.  Warren Buffett famously said … “You never go broke taking a profit.”  Once rates break below 5.5%, with trending low inventory, prices will push forward.

PS:  Existing VA Mortgages are assumable. I just listed a home with a VA Mortgage, 3.375% interest rate. Provided a buyer is financially qualified, a VA mortgage can be assumed by a buyer, regardless of whether the buyer is a veteran.